Question 1

If float is predicted to increase because of bad weather,the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.

Accepted Answer

A) defensive;inject 
B) defensive;drain 
C) dynamic;inject 
D) dynamic;drain

Question 2

Suppose on any given day there is an excess supply of reserves in the federal funds market.If the Federal Reserve wishes to keep the federal funds rate at its current level,then the appropriate action for the Federal Reserve to take is a ________ open market ________,everything else held constant.

Accepted Answer

A) defensive;sale 
B) defensive;purchase 
C) dynamic;sale 
D) dynamic;purchase

Question 3

Funds held in ________ are subject to reserve requirements.

Accepted Answer

A) all checkable deposits 
B) all checkable and time deposits 
C) all checkable,time,and money market fund deposits 
D) all time deposits

Question 4

Since 1980,________ are subject to reserve requirements.

Accepted Answer

A) only commercial banks 
B) only the member institutions of the Federal Reserve 
C) only nationally chartered depository institutions 
D) all depository institutions

Question 5

In the market for reserves,a lower discount rate

Accepted Answer

A) decreases the supply of reserves. 
B) increases the supply of reserves. 
C) lengthens the vertical section of the supply curve of reserves. 
D) shortens the vertical section of the supply curve of reserves.

Question 6

The interest rate charged on overnight loans of reserves between banks is the

Accepted Answer

A) prime rate. 
B) discount rate. 
C) federal funds rate. 
D) Treasury bill rate.

Question 7

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________,everything else held constant.

Accepted Answer

A) decreases;fall 
B) increases;fall 
C) increases;rise 
D) decreases;rise

Question 8

Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve's federal funds target rate.If the Federal Reserve wishes for the federal funds rate to be at their target level,then the appropriate action for the Federal Reserve to take is a ________ open market ________,everything else held constant.

Accepted Answer

A) defensive;sale 
B) defensive;purchase 
C) dynamic;sale 
D) dynamic;purchase

Question 9

In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,then an open market ________ the supply of reserves,raising the federal funds interest rate,everything else held constant.

Accepted Answer

A) sale decreases 
B) sale increases 
C) purchase increases 
D) purchase decreases

Question 10

The Fed prefers that ________ so that ________.

Accepted Answer

A) banks borrow reserves from each other;banks can monitor each other for credit risk 
B) banks borrow reserves from each other;the Fed can monitor banks for credit risk 
C) banks borrow reserves from the Fed;banks can monitor each other for credit risk 
D) banks borrow reserves from the Fed;the Fed can monitor banks for credit risk

Question 11

Everything else held constant,in the market for reserves,when the federal funds rate equals the interest rate paid on excess reserves,raising the interest rate paid on excess reserves

Accepted Answer

A) increases the federal funds rate. 
B) lowers the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect of the federal funds rate.

Question 12

The discount rate is kept ________ the federal funds rate because the Fed prefers that ________.

Accepted Answer

A) below;banks borrow reserves from each other 
B) below;banks borrow reserves from the Fed 
C) above;banks borrow reserves from each other 
D) above;banks borrow reserves from the Fed

Question 13

Everything else held constant,in the market for reserves,when the federal funds rate is 1%,increasing the interest rate paid on excess reserves from 1% to 2%

Accepted Answer

A) lowers the federal funds rate. 
B) raises the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect on the federal funds rate.

Question 14

Everything else held constant,in the market for reserves,when the demand for federal funds intersects the reserve supply curve on the vertical section,increasing the discount rate

Accepted Answer

A) increases the federal funds rate. 
B) lowers the federal funds rate. 
C) has no effect on the federal funds rate. 
D) has an indeterminate effect on the federal funds rate.

Question 15

Explain the Fed's three tools of monetary policy and how each is used to change the money supply.Does each tool affect the monetary base or the money multiplier?

Accepted Answer

The answer of Explain the Fed's three tools of monetary...

Question 16

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.

Accepted Answer

A) increase;permanently 
B) increase;temporarily 
C) decrease;temporarily 
D) decrease;permanently

Question 17

The two types of open market operations are

Accepted Answer

A) offensive and defensive. 
B) dynamic and reactionary. 
C) active and passive. 
D) dynamic and defensive.

Question 18

The most important advantage of discount policy is that the Fed can use it to

Accepted Answer

A) precisely control the monetary base. 
B) perform its role as lender of last resort. 
C) control the money supply. 
D) punish banks that have deficient reserves.

Question 19

In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,an increase in the reserve requirement ________ the demand for reserves,________ the federal funds rate,everything else held constant.

Accepted Answer

A) decreases;lowering 
B) increases;lowering 
C) increases;raising 
D) decreases;raising

Question 20

When the federal funds rate equals the discount rate

Accepted Answer

A) the supply curve of reserves is vertical. 
B) the supply curve of reserves is horizontal. 
C) the demand curve for reserves is vertical. 
D) the demand curve for reserves is horizontal.

Exam 15: Tools of Monetary Policy

If float is predicted to increase because of bad weather,the manager of the trading desk at the New York Fed bank will likely conduct open market operations to reserves.

Suppose on any given day there is an excess supply of reserves in the federal funds market.If the Federal Reserve wishes to keep the federal funds rate at its current level,then the appropriate action for the Federal Reserve to take is a open market ,everything else held constant.